Bridging the Funding Gap: Emerging Ideas

The Refugee Investment Network (RIN) was founded by John M. Kluge as “the first impact investing and blended finance collaborative dedicated to creating long-term solutions to global forced migration.”6 In its recent white paper, Paradigm Shift: How investment can unlock the potential of refugees, 7 RIN describes both the barriers to refugee investing and ideas for how to overcome those barriers.

A primary barrier, according to Kluge, is one of belief: that refugees are too risky for investment. The RIN report points to the growing body of evidence that says otherwise—arguing that refugees are in fact employable, credit-worthy, and investable.

Another barrier is that humanitarian and philanthropic aid, often the most obvious approach to crises, acts primarily as a short-term, emergency-level response. But the challenges that refugees, migrants, and human trafficking survivors face generally stretch into years, even decades. Often, refugees can never return to their homes.

In addition, addressing the needs of refugees, migrants, and human trafficking survivors sometimes ignores the equally pressing needs faced by their new home countries and cities, which can quickly become overwhelmed by the influx of new and needy members of their communities.

These barriers all exist within the underlying funding gap previously discussed.

One of the central themes of the RIN paper is the need for “connective tissue” in the form of specialized intermediaries that can bridge the gap between the funding needs of social entrepreneurs and the risk, return, and other deal requirements of investors. Another theme concerns the advantages of blended finance for investments in this sector. Blended finance most often takes the form of:

→ Concessional capital, in which public or philanthropic investors are concessional within the capital structure.

→ Technical assistance funds, where the transaction is associated with a grant-funded technical assistance facility.

Less-common blended finance structures include:

→ Guarantee/risk insurance, through which public or philanthropic investors provide guarantees or insurance priced below market rates.

→ Design-stage grants, which use grants to fund transaction design or preparation.

Another form of blended investment with potential for refugees, migrants, and human trafficking survivors is impact bonds—particularly Development Impact Bonds (DIBs) and Humanitarian Impact Bonds (HIBs). Béatrice Delperdange, head of Business Development for KOIS8, a firm specialized in impact investing, explains how DIBs, aimed at programs in developing countries, provide a way to engage private funders for a long enough period—generally three to eight years—that allows enterprises to achieve some financial success and for investors to reap high-enough returns.

The more recently introduced HIBs, focused specifically on the humanitarian context, are designed for situations that typically receive emergency humanitarian aid. But the difference is that HIBs are longer-term bonds, in recognition of the reality that many of today’s refugee humanitarian crises can last for decades.

Other innovative approaches to addressing the financing challenges of refugees include:

→ The European Venture Philanthropy Association (EVPA) is dedicated to creating positive societal impact through venture philanthropy.9 According to EVPA, “Venture philanthropy and social investment are about matching the soul of philanthropy with the spirit of investment, resulting in a high-engagement and long-term approach to creating social impact.”

→ The Kiva World Refugee Fund10 is a crowdfunding approach to addressing long-term needs of refugees, displaced peoples, and their host communities.

→ New investment vehicles, such as the Variable Payment Obligation (VPO) pioneered by Miller Center’s

John Kohler, offer repayment options beyond what traditionally structured investments require—and better suited to issues faced by some SEM enterprises such as seasonality or other fluctuations of income.

→ The Brookings Institution11 website offers reports of various kinds of development financing programs being discussed or considered worldwide.